Michael G. Plummer: The debate regarding the economic consequences of preferential trading agreements has been ongoing for 65 years—since the publication of The Customs Union Issue by Jacob Viner (Viner 1950). The theoretical debate has centered on the “second-best” nature of customs unions and free trade areas (FTAs), that is, the net efficiency effects of policy discrimination in favor of a partner country(s) as opposed to a multilateral approach. The focus of the debate has changed over time: First, the literature considered the static efficiency effects of Vinerian trade creation and trade diversion. Second, it pondered whether preferential trading arrangements could ever be in the interest of a country; unilateral tariff liberalization, which is a policy lever possessed by all countries, under certain assumptions could dominate a preferential strategy (Cooper and Massell 1965; Berglas 1979) because it engenders only trade creation and no trade diversion.1 Third,...

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